You’re Probably Tipping Your Waiter Incorrectly

Now how bold am I to title my post “How Much To Tip Your Waiter”. This implies that many of you out there don’t know how to tip your servers. Of course there’s no wrong way to tip and the amount of tip you leave is extremely subjective based on each individual’s experience as well as personal finances.

How Much To Tip Your Waiter

You and your friend are eating at a restaurant. You two order $40.00 worth of food and drink and when the check comes out, after tax, the total comes out to $50.00 (to make the math easy). The service was excellent and being good patrons, you two decide to leave a tip. How much to tip your waiter? Well since it was good service, you leave a 20% tip. So you use the tipping trick to calculate 20% of the bill:

Move the decimal point to the left and double the amount: $50.00 -> $5.000 x 2 = $10.00

So you pay the $50.00 bill and leave a $10.00 tip totaling $60.00. Which is 20%.

What’s wrong with this scenario?

The Intuition

Let’s think back as to why we tip.

You two ordered $40 worth of food and the establishment delivers $40 worth of goods and services. How well they deliver these goods and services will influence how much you choose to tip.

It is this pre-tax amount of $40.00 of goods and services on which you should be tipping, not the post-tax $50.00 amount.

The actual amount that you should be tipping for their service would be

$40.00 -> $4.000 x 2 = $8.00

Totaling the bill to $58.00 instead of $60.00.

The Reasoning

It’s appropriate to be tipping a waiter based on their service, not based on how much sales tax the state places on the restaurant. At the end of the year, assuming that all your waiters are Honest Abes and report their tips appropriately, they will be taxed on the amount of tips they received.

The majority of the population probably aren’t Honest Abes. All that is required by the IRS, is to report tips equal to 8% of their wages. In this case, with the extra $2 you’re handing your waiter, that cash is flowing from your hands, through the waiter’s hands, into the hands of the IRS. In other words, you’re giving them extra money to help pay off their taxes.

Now I’m not trying to start some tipping revolution. Most people look at the bottom line on their receipt and tip based on that. Hell I do it too. But it’s good to point out this scenario in case you’re in a large group dinner and hit with a larger final bill where the pre-tax and post-tax numbers are a significant amount. I’m also not saying to leave too much either. After all, we’re all trying to attain financial independence here.

Other Things to Look Out For

This works in other ways too. If you’re dining at a restaurant during happy hour with discount prices, remember that they’re still bringing you the same $40 worth of food and drink. I’d like to think that tipping based on its real price is fair. So even if the bill comes out to $30.00 because of happy hour, the correct way to tip would be to tip based on the $40. This is how much to tip your waiter.

This also counts for gift cards too. If you have a $40 gift card to a restaurant which reduces your total from $40 to $0, then it’d be fair to tip on the original $40 because the waiter still provided the same $40 worth of services. Plus, would you really tip $0 x 20% = $0.00?

Conclusion

In reality, no one does this. It’s a lot of hassle to sit there and calculate pre-tax vs post-tax vs discounts vs gift cards. After all, all you wanted was a nice night out, not figuring out how much to tip your waiter. And you don’t want to be that guy who pulls out a calculator in the middle of the restaurant. If you’re a nice person, paying an extra $2 isn’t all that bad if you’re not in financial distress. And personally, I like to add my appropriate amount of tip and then round up to the nearest dollar so that my credit card statements are in whole numbers, which make it easier for me to budget.